Have you ever felt extremely frustrated in trading and felt like quitting?You may find yourself asking “why can’t I make it as a trader”. I’ve put in hours and hours. I am still unable to be consistently profitable … why? Everyone experiences this cycle at the beginning so don’t worry it is normal and part of learning to trade.Does this Vicious Cycle Look Familiar?LEVEL 1 – UNCONSCIOUS INCOMPETENCE, Individual has no clue about trading and nil profitable experience.LEVEL 2 – CONSCIOUS INCOMPETENCE, Traders start searching the internet and are overwhelmed by the information. They are constantly looking for the easy and better solution. Start trading with limited or no success. 90% of traders are at this level.LEVEL 3 – CONSCIOUSLY COMPETENT, Trading is carried out successfully Full application and concentration is maintained.LEVEL 4 – UNCONSCIOUSLY COMPETENT, Trading is automatic and effortless and requires no intense concentration.Most traders are stuck between Level 1 and 2, so how do you move up to the next level and stay there?Your poor decisions are not actually your fault a lot of the time, your mind is not programmed to handle the new psychological process. Your challenge is to program your mind to automatically respond. There is absolutely a science behind why you are struggling at the moment.Now you’re asking “could it really be a physiological event occurring that’s making me trade so poorly”?If you’ve been stuck at Level 2 on the competence ladder then the following information will resonate with you. Let us take a quick lesson in Neural Anthropology. The secret to your success is in that 15cm space. That is of course the space between your eyes, your mind.There are four key systems in your brain that co-exist together affecting your results in life & in trading. The four systems are Associations & neural, reticular activation, psycho-cybernetic mechanism and the Amygdala. To achieve success as a trader you need to be able to control these 4 systems to properly implement your traders mindset and all 4 need to be optimally controlled for success. Trading is made up of you making decisions. This is the reticular formation part of your brain that performs this task. This is the part of your mind that responds to outside stimuli, looking at trading charts for example.You are biologically hardwired to react instantly to things you see and your Reticulation System searches for the best response or solution. Your beliefs and or your programmed training or lack thereof determine your response. Without a plan you experience a state of panic or stress searching for a solution. Your Brain then engages the amygdala into selecting a solution, remember that an instant solution is not always the best one for traders.What is the psycho-cybernetic mechanism?In charge to keep you in your comfort zone no matter how badly you want to change. It picks up any deviation then sends feedback to your nervous system trying to correct the deviation to bring you back to your comfort Zone.What is the Amygdala?”The human brain has adapted over many centuries by providing processes that improve the survival of the individual and the species. A part of our brain, the amygdala, acts as our protective filter, it has the ability to remember painful experiences and it will attach emotions to those experiences. It makes judgments about likes and dislikes and passes its prejudices to the outer part of the brain.” (Richard W Friesen)So you can see that you automatically assign pain or a negative emotion to trading outcomes.That part of your brain (the amygdala) stores details about EVERYTHING that ever hurt you and tries to avoid those things in the future. You can see it is not your fault you are making poor decisions in your trading it is all automatic and happening before you actually know it. How to you fix it?? Easy.It seems easy doesn’t it, find the problem and here’s the solution…..bang you’re a successful trader? Losses have much more impact on the amygdala than wins. In fact, it does not register wins at all. It only registers the negative emotion connected to an event. The more you trade, the more times you will lose and the amygdala never forgets a loss and who or what caused it. Never.Gradually, therefore, the amygdala adds emotional color to your trading experience in the form of fear…..and so the cycle begins!! Can you see where you are headed? Trading has a vicious cycle and over time YOU become afraid of the trade setups. Doubt starts to eat away at your ability and confidence which is fueled by negative reinforcing self talk and you miss trades entirely or think up a reason why you should not take it. Sound familiar?So your solution is to ensure that you maintain a coherent emotional state and do not trigger the amygdala. You should avoid trading positions or activities that produce fear and trigger it and practice maintaining a calm, balanced emotion during your session. Be sure to also eliminate any negative self talk.This may sound a bit far fetched but you should monitor your heart rate to ensure your resting rate is at a calm controlled level. It will also detect any unusual spikes in your heart rate during your trading session.
Underlying stress can sometimes be difficult to detect. So how do you put these filters into play when you trade?? Process, structure and of course SCIENCE…Traders often start out with a streak of ‘beginner’s luck,’ but eventually the inherent risk of trading catches up with them. Most traders go into Self Sabotage mode … The thought of this syndrome as “self-sabotage” is unhelpful. Traders do not have a deep-seated desire to remain trapped or fail and at the root of the problem is Toxic Stress and this is the nasty beast causing the problems.Toxic Stress!Simply put, trading stresses you out and remember the response from the amygdala? It tries to avoid things that hurt you including trading losses. That is why trading to avoid risk (trading not to lose) produces diminishing returns… or worse. Risk can be managed and mitigated, but there can be no reward in trading without it. When your caught in the Cycle of Toxic Stress, you get out of sync and just about everything you do is wrong. You know you are caught in Toxic Stress when:- You hesitate to enter when and where your plan calls for an entry
- You impulsively chase trades, causing you to buy high and sell low
- You get out of trades too early instead of letting winners run
- You let winners turn into losers and you hold the losers too long
- You try to follow a plan, but you act impulsively or freeze
- You’re desperate and you try make back lossesWe’ve all been there so don’t pretend you haven’t!!!!Here is 3 steps to help you defeat the nasty toxic stress psychological by-products of trading.1. MAINTAIN YOUR EMOTIONAL STABILITYActive trading will trigger primal defensive (or aggressive) emotions in your psychology. Emotional activation will cause your prefrontal cortex to shut down (part of your brain), making it impossible to identify the opportunities right in front of you. You will miss the obvious things which makes you unable to trade your plan as you want to. Your fear of missing out will cause losses and your fear of loss will cause losses. Sound familiar??2. MAINTAIN A CONFIDENT MINDSETYou need to actively manage your mental attitude in order to remain confident independent of short-term results. Are you paying too much attention to what just happened and not enough attention to your plan?
Successful trading requires you to always be confident in your trade plan. Maintaining a confident mental attitude is a skill that can be fine tuned. Top athletes practice it. Top traders practice it. You can, too.3. MASTER YOUR TRADING ‘EDGE’Your trading ‘edge’ is the technical or methodological advantage you have that comes from pattern recognition. Professionals trade patterns, amateurs trade opinions and biases. For example, professionals expect reversals when amateurs are biased for breakdowns and breakouts. Professionals buy dips when amateurs are picking tops. If you don’t master your trading edge, you’ll be targeted over and overAnother part of trading which is often overlooked is the risk in each trade, day, week, month and year. As a trader you should determine your level of risk.What level of risk you are prepared to accept in the market?Are you comfortable with the level of risk you are assigning to your trades?The most important aspect of risk in the market and often the deep seeded reason why traders are failing is they are trading with money that is not risk capital this immediately produces an emotional response to losses. Hence the point of the article, risk capital is risk capital. Risk capital is not mortgage, rent and food money.All traders no matter if they are professional, part time, hobby or new to the game should be measuring their performance. This should include a daily review of your performance which can be undertaken by a non biased third party based on a trader assessment checklist if possible. You need to be accountable for your performance just like any other profession.No doubt you would have heard that you should have a plan, you already know that I hope. If you want to know how to trade professionally please read on.Remember, your success will come from doing the simple things exceptionally well. You will find that everything you have covered in this module is simple but very effective when combined as an overall strategy for maintaining your internal control. We are the experts in this field so please use us to succeed.